Licensing allows internationally expanding organizations to carry out expansion by establishing contractual relationships with licensees. This contractual relationship is generally established to provide the host country’s party permission to make use of the expanding business’s technology, brand name and similar fundamentals. In turn, the licensee pays a pre-established loyalty to the licensor. It saves the licensor from numerous expansion costs. In layman terms’, licensing is like outsourcing the expansion process altogether.
This expansion method is brought into use by small, medium and large enterprises alike when considered for international expansion. The licensing option is most lucrative in cases where barriers to entry are high or moderately high, or where the expansion has to be carried out without spending too much time on preliminaries. In addition, it holds considerable advantages for the licensee as well since the licensee serves as a channel for the host country through which the host country can benefit from the products and services offered under the brand name of the licensor (Katsioloudes and Hadjidakis 2007).
Acquisitions in the case of international expansions are generally carried out by the internationally expanding business purchasing a majority of stock in a firm that is already present in the region in to which the expansion is being carried out. Acquisitions serve as feasible instruments to access a market in which government restrictions exaggerate entry barriers. In addition, it serves to provide the expanding business a complete and already-in-place infrastructure that it can improve, or build upon. However, it is important to consider that the fact that an international expansion through acquisition tends to raise complications in terms of the compatibility of processes between the expanding business and the business acquired (Katsioloudes and Hadjidakis 2007).
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